Congress Looking At Protecting Small, Disadvantaged Businesses

(MoneyWatch)  Under federal law, about 25 percent of the dollar value of U.S. government contracts must go to small and disadvantaged businesses. (The term "disadvantaged" includes those owned by women, ethnic minorities, Native Americans, veterans and disabled veteran corporations.) The Small Business Administration (SBA) is responsible for tracking and enforcement.

Unfortunately, the government has struggled to reach those numbers. One reason is that the SBA can have a hard time determining who qualifies and is a what work it got. Matters get confusing because not all of the money has to come from direct contracts with the government; when a large contract is awarded to, say, Boeing (BA), the company must make sure that a certain percentage of the work is set aside and submit sub-contracting plans showing this. If the plan is late or Boeing has a hard time finding appropriate contractors, then the money goes to Boeing and stays there.

Another major issue is that larger companies or people who do not meet the criteria set up "front companies" that seem to meet the requirements. They then win the contract under fraudulent conditions. Several cases related to the recent stimulus bill, the American Recovery and Rehabilitation Act (ARRA), have increased Congressional awareness and angst over the issue. There are already rules to punish companies that do this but due to the recent controversies Congressman Joe Sestak (D-PA), a retired Admiral, has introduced legislation to increase the penalties and to define the use of "pass through" or "front companies."

The underlying issue is that the Government for social engineering desires reduces the competition for a certain amount of its contracting dollars. Since these contracts are easier to win, people are tempted to game the system. This subverts the goal of helping these groups. There needs to be crackdowns on this type of fraud; Sestak's bill is a step in the right direction.